Currituck sued over room tax revenue


By Sandy Semans Ross

Monday, May 20, 2019

CURRITUCK — A Corolla civic group has filed suit against Currituck County, challenging more than $40 million the county has spent in occupancy tax revenue on projects and services since 2004.

The lawsuit, filed May 7 on behalf of the Corolla Civic Association and Currituck Outer Banks citizens who pay occupancy taxes to the county, names Currituck County, the Currituck County Tourism Development Authority, the Currituck Board of Commissioners and Currituck County Manager Dan Scanlon as defendants.

The lawsuit alleges Currituck has violated the state Constitution’s mandate that tax revenues be spent according to the restrictions imposed when legislators authorized the tax. The suit alleges that 99 percent of the revenues from Currituck’s occupancy tax — the 6 percent tax charged on each hotel room or cottage rental — are collected from properties on the Currituck Outer Banks, but a significant portion of it has been spent on the county mainland for what plaintiffs claim are non-tourism-related purposes.

Included in the long list of questioned expenditures in the complaint are economic development projects; a loan of almost $6 million to the Southern Outer Banks Water System; construction of facilities, services and mainland parks. The county also used occupancy tax revenue to fund special tax districts instead of imposing taxes on property owners who live in the areas, the lawsuit states.

Almost $23 million was spent for an assortment of projects, including for Veteran’s Park water access; the Currituck Rural Center and its operations; Maple multi-use fields, and parks and recreation, the lawsuit claims. Some expenses and transfers to other funds don’t stipulate the purpose for using the funds, according to the lawsuit.

Currituck County Attorney Ike McRee declined to comment on the lawsuit Friday, noting the county was only recently served with it. He said he will be evaluating the suit’s claims and, after talking to the Currituck Board of Commissioners, file a written response.

Casey Varnell, a Dare County attorney representing the plaintiffs, said he was reserving comment on the lawsuit’s claims for now.

Corolla Civic Association President Barbara Marzetti could not be reached for comment.

The N.C. General Assembly first authorized Currituck to charge a 3-percent occupancy tax on hotel room and cottage rentals in 1987, allowing the county to use 75 percent of the proceeds on maintenance of public facilities and buildings, solid waste collection and disposal, police protection and emergency services. The remainder of the funds were to be deposited in the county’s general fund and could be used for any lawful purpose.

Four years later, the county returned to state lawmakers and requested permission to charge an additional 1 percent occupancy tax to help fund the Whalehead Club’s operations. Lawmakers agreed to the county’s request.

But in 2004, yet another piece of legislation was passed that allowed Currituck’s occupancy tax to increase by 2 percent — raising the total to 6 percent — and significantly changed how the proceeds could be used. Two-thirds of the revenues were limited to “…tourism-related expenditures, including beach nourishment.” The remaining third had to be used to promote travel and tourism, which includes marketing, events and advertising.

According to the 2004 legislation, tourism-related expenditures were supposed to be anything “that, in the judgment of the Currituck County Board of Commissioners, is designed to increase the use of lodging facilities, meeting facilities, recreational facilities, and convention facilities in the county by attracting tourists or business travelers.” The term includes “tourism-related capital expenditures” and beach nourishment projects.

The Corolla Civic Association claims in its lawsuit, however, that the 2004 legislation removed expenditures for facility construction and county services such as law enforcement, garbage collection, or emergency medical services.

The 2004 legislation also added a stipulation that the county create a Tourism Development Authority to be responsible for spending the net proceeds of the occupancy tax and to provide quarterly and annual reports to the Board of Commissioners, which serves as the authority. None of the occupancy tax proceeds were to be held in the county’s general fund.

According to the Corolla Civic Association’s lawsuit, the county has not responded to the public records request it filed in January 2018 seeking all Tourism Development Authority reports from 2010 through Dec. 31, 2017.

The lawsuit contends Currituck continued to deposit occupancy tax proceeds into its general fund account until 2008. It further claims the county made at least two attempts to get legislators to change the law’s language to once again allow expenditures for county services and facility construction. Both attempts failed, the lawsuit states.

Occupancy tax revenues collected from 2005 through the projected end of the current fiscal year are estimated to be $141 million, according to the lawsuit.